Around a third of the global subsea oil services industry, the likes of drilling contractors, equipment manufacturers, and subsea construction companies, is dominated by the UK. Aberdeen, Glasgow and Leeds are key centres for the sector.

Some 40,000 people in the UK are employed in the subsea sector with revenues of around £5bn a year.

It has enjoyed a boom in recent years when oil prices soared to a high of $147 a barrel in July 2008.

But there are increasing fears that even as the industry adjusts to the economic downturn and relatively lacklustre oil price, currently just below $80, longer-term trends could see work increasingly move abroad.

The troubles faced by the services industry were illustrated by figures that were published by trade body Subsea UK on Monday.

Volumes of work are relatively stable but day rates are off 5% to 10% meaning margins are down 15% to 35%, according to the group.

The pressure has been since the oil majors made a big drive to clamp down costs, complaining that prices have risen excessively over the past few years. Oil service companies themselves report rates had only just crept up from the past. They add that a lot of the money has been reinvested into new fleet.

Subsea UK chief executive Alistair Birnie warned yesterday of an erosion in confidence feeding down the supply chain “to the extent I think we are in for a pretty tough time into the middle of next year.”

It’s not universal. Companies with repair and maintenance operations are performing better than other parts of the sector. Companies that were astute, or were lucky enough to have a strong forward book of business in place, are also doing fine.

Birnie said: “Those with continuing contracts continue to be reasonably well protected from the worst of the downturn. Those trying to find new work are finding the work is not as forthcoming as it was.”

Birnie has called for cleverer working in the sector to alleviate the ups and downs. For instance he would like to see companies working together on orders, noting half of costs are on mobilising and demobilising teams.

He also wants to see more longer term contracts between oil service companies and clients to reduce the amount of conflict between the two sides. But that still leaves the longer term issues.

Experts believe there is still between 12 billion and 25 billion barrels under the North Sea. But oil services companies are worried that there isn’t sufficient capital being pumped into the industry to utilise these reserves.

Worse, if business isn’t directed towards subsea oil contractors soon, they might not be around in a few years when they are needed.

Exploration is less than half what it was last year, according to figures from Oil & Gas UK. Capital investment is also below the £5bn a year that the organisation estimates that the UK North Sea requires.

Among those who has been sounding alarm bells is Sir Ian Wood who warned last week that the UK could miss out on $1300bn (£783bn) in oil and gas revenues unless industry players and ministers get their acts together.

The concern is that if oil services companies can not get enough work in the North Sea their links to the UK will steadily weaken.

State-run oil companies in particular often demand a certain amount of “local content” in contracts, with a law to this end recently passed in Nigeria.

Birnie said: “The temptation is for companies to go further and further overseas. Unless we see an increase in capital investment [in the UK North Sea] in the short to medium term, the decline may push companies overseas.”

Part of the solution may lie in loosening of rules around tax credits for exploration expenses but the industry appears realistic about the state of the Government’s coffers and the chances of major concessions.

Malcolm Webb, chief executive of Oil & Gas UK, the leading representative of the UK offshore energy industry, said: “The Government is not going to cut tax rates. They are in a terrible position with the economy.”

But Birnie warns that without action oil service companies could close plants: “That is not happening at the moment but it could.”

The key for is oil explorers and producers to take a long-term view.

Despite its current problems, Birnie warns that so little investment is going on in his sector that if demand for oil services goes up again, it could hamper the industry.

Webb agrees: “We want to keep the supply chain operating here in the UK. If it does go away it will make it much more difficult to access these resources.”

And, he added, new

offshore industries could be particularly hurt: “We have major potential for an offshore wind industry with supply chain activity around that.”